No one in Austin had even heard of Karlin Real Estate three years ago. Now the Los Angeles-based investor is a formidable presence locally as it breaks ground this week on the first element — an office building — of a $1 billion multi-use development in North Austin.

Karlin purchased the 300 acres in Fall 2012. The acquisition was considered quite the coup since it represented one of the few large commercial infill parcels available in the city.

Now, in an effort to make an even greater impact, Karlin has partnered with Dallas-based Trammell Crow Co. in the creation of Parmer, a master-planned project on the land, which is located between Parmer and Howard lanes a short distance east of I-35.

“Trammell Crow is clearly recognized as a leader in the development world,” said Matt Schwab, managing director of Karlin. “They have relationships with major companies in North America and the world.”

Karlin will own the Parmer project and Trammell Crow will be the master developer.

The first element under constrution is Parmer 3.2, a 192,000-square-foot Class A office building near McCallen Pass on the west side of the development.

CBRE Group Inc. — primarily the team of Mark Emerick and John Barksdale — is handling the marketing. Emerick said numerous companies have inquired about the space. Located in the Austin-area’s northwest submarket, Emerick said the space presents a different opportunity than the estimated 2 million square feet of high-end office space under construction in Austin, much of it downtown. Neither Emerick nor Schwab would disclose which companies have expressed interest in Parmer 3.2.

The key differentiating factors with Parmer are the less expensive pricing, ample parking and larger floorplates of 64,000 square feet. Compare that with Colorado Tower, under construction downtown, featuring floorplates of 24,500 square feet.

Emerick said many companies prefer to have more employees on one floor for various efficiencies.

Delivery is expected in the second quarter of 2015. They said high tech firms are particularly interested, given the proximity of other high profile companies such as Dell Inc., Apple Inc., Samsung Corp. and Oracle Corp. They are working closely with the Austin Chamber of Commerce and the affiliated Opportunity Austin economic development program to secure tenants.

Holt: Karlin and Dallas Go Well

Together

By Katie Hinderer a

DALLAS–As GlobeSt.com reported earlier this month, Los Angeles-based Karlin Real Estate has expanded by opening an office in Dallas. As part of that expansion, John Holt has been brought on as the director of structure finances. GlobeSt.com caught up with Holt to get his take on the market and why Karlin in entering Dallas now.

GlobeSt.com: In your opinion what is the current state of the Texas and Southwest markets?

Holt: The real estate industry in Texas has benefitted more from this recovery than most other regions of the US because of fundamentals. Our diversified economy, low cost of living, and most importantly the restraint we showed during the last real estate boom helped us

come out of the recession in a better position than in other parts of the country. In the past 12 months we have added 375,00 new nonagricultural jobs, which led to a healthy 3.4% job growth in Texas — double that of the US average. With no personal or corporate income tax and a pro-business regulatory environment, the State has been successful in attracting large and small companies from both ends of the country. This bodes well for continued growth in the real estate sector.

GlobeSt.com: Of all the places in the US to open an office why was Karlin so interested in Dallas?

Holt: Strategically it allows us to have a hub in the central part of the United States that gives us greater accessibility to the Southeast and Midwest. In addition, the Dallas office allows Karlin to better manage our existing, Texas-based holdings, which includes approximately 3.4 million square feet of commercial and industrial assets. We also have 300 acres of land in Austin, which is currently being entitled for a master planned technology and office park. Finally, I think Karlin and Dallas go well together from a

philosophical standpoint. There is an entrepreneurial culture here that I believe marries perfectly with the Karlin culture and that will serve our growth well in the future as we compete to attract young, talented real estate professionals to the team.

GlobeSt.com: What do you see as some of the strengths and weaknesses of the market?

Holt: I believe the biggest strength we are seeing is positive migration to the area. I can see a snowball effect as a more educated and sophisticated work force becomes increasingly available due to a relatively low cost of living, which then contributes to a continuing of the economic expansion in the region. The main weakness is the risk that goes with success in real estate–overbuilding. The low barriers to entry and our State’s position of incentivizing economic development, gives cause for some concern in the long-term. But if the region continues to practice the restraint it demonstrated in the past boom and the financial institutions keep their underwriting standards high we think the market should be stable. That said, we continue to monitor the fundamentals very closely.

GlobeSt.com: In this new role, what will be your first order of business?

Holt: My first order of business and my primary focus will be to source value-add and opportunistic investment opportunities across the firm’s debt and equity platforms. At the same time, I would like to see the expansion of the Karlin brand and its solid reputation across the State.

GlobeSt.com: While Karlin already has a significant Texas portfolio will you also be looking for additional deals? What are you looking for?

Holt: The short answer is yes. As mentioned previously, we feel good about the future for growth here in Texas, and as such, are looking for opportunities that will capture that growth. In addition to acquiring assets for our own portfolio we will be looking to partner with local operators, by providing senior secured debt, mezzanine capital or investment equity. As an operating unit of a private investment company with more than $1.5 billion under management, we benefit from not having a typical investment ‘box’ or constrictive LP constraints. I’m generally agnostic to asset class but enthusiastically seeking value- add opportunities of all types (commercial, retail, multifamily and hospitality) where we can add value, both through the initial capitalization and business plan execution.

GlobeSt.com: Crystal ball moment… where do you see the market in 5 years?

Holt: I am very intently monitoring the legacy CMBS market with a focus on the 10-year maturities of those pesky 2005 – 2007 vintage loans. I think the volume of collateral that could flood the market could be dangerous within the context of a rising interest rate environment. I don’t have a crystal ball, but my rear view mirror tells me that “hot money” in a rising tide market can be dangerous if market participants lack the discipline that we pride ourselves on at Karlin Real Estate.

Karlin Real Estate acquires Gateshead retail for £8.55m Karlin Real Estate has acquired a 97,935-sq ft retail project in Gateshead from UK-based Reef Estates for £8.55m. The project marks Karlin’s first retail acquisition in Europe since it entered the market in August 2013.

Comprised of two recently renovated, two-storey buildings, the asset includes: Jackson House, a 19th Century building, and the 1960s-era New Century House. The buildings are located at Jackson and West Streets, opposite the town’s main transport hub, Gateshead Interchange. Together, the buildings feature 75,000 sq ft of street level retail and 22,000 sq ft of office and medical space. The retail space is fully leased to a strong roster of tenants, including national retailers Halifax Bank (Bank of Scotland), Argos, JD Wetherspoon, PureGym, and Peacocks. The office component is renovated and currently 52 per cent leased.

“Gateshead is the first of several retail assets in the UK and Ireland that we are looking to add to our portfolio in the next several months,” said Karlin’s managing director. “Its balanced tenant roster and location across from the Gateshead Interchange and adjacent to the new Tesco-anchored Trinity Square is attractive to us.”

Karlin currently holds a European portfolio of approximately 850,000 sq ft and plans to invest up to £600m in European commercial real estate assets through both its debt and equity platforms.[/fusion_text]
]]>

New European-Commercial Property Lenders Don’t Look Like Banks

By ALESSIA PIROLO April 8, 2014

A new breed of lender is playing a more important role in Europe, as the rebound in the commercial-real-estate market begins to expand from traditional areas of strength, like London and Frankfurt, to other markets.

The latest example of these so-called nontraditional lenders: A venture of Prudential Real Estate Investors and Dutch pension-fund manager Algemene Pensioen Groep has raised a €265 million ($364 million) fund to make junior loans and preferred-equity investments, primarily in the Netherlands.

Like other financiers in this fledgling category, the Pramerica Real Estate PRU +1.15% Capital V fund will try to fill a gap left by banks that have been reducing their exposure to commercial property.

“The Netherlands, in a way, is on the same position where London was two years ago,” said Robert-Jan Foortse, head of European property investments at Algemene Pensioen Groep Asset Management. “It is a market where there is limited debt funding available, and the values of properties have slightly corrected.”

Nontraditional lenders also include insurance companies and private-equity firms that are increasing their lending throughout Europe.

From the first quarter of 2012 to the same period in 2014, the proportion of traditional banking sources lending to commercial-real- estate borrowers fell from 67% to 55%, according to a recent report by Cushman & Wakefield. Their appetite for commercial-real-estate loans has faded partly due to increased regulations in the wake of the downturn.

“This is providing nonbank lenders the opportunity to bridge the gap between the [financing] required by borrowers and what is being provided by the banks,” said Rawle Howard, a director of BlackRock Inc.’s real-estate-debt team, which also is targeting the Netherlands.

Meanwhile, in the past year, the number of debt funds and private-equity lenders in Europe

has increased by 29%, the Cushman & Wakefield report says.
Currently, at least six European so-called mezzanine-debt funds are in the market trying to

raise about €1.7 billion, according to alternative-assets researcher Preqin. Mezzanine loans typically are a more risky type of debt that occupies a position in the capital structure between senior debt and equity. If all the funds meet their targets, 2014 could be a record year for mezzanine-debt fundraising in Europe.

Investors have been focusing on the Netherlands in part because prices have been bid up so high in the most desirable markets. In cities like London, Paris and Frankfurt, top office-building values are so high buyers are accepting average annual returns of about 4.5%, while in Amsterdam yields for top office buildings are around 5.5%, according to Machiel Wolters, director of research at CBRE Group Inc. CBG +1.06%

Meanwhile, rent and occupancy trends are more favorable in the Netherlands than they are in other markets investors are turning to, like Italy, Spain and Portugal, experts say.

In 2013, deal volume for commercial real-estate transactions in the Netherlands reached €5.3 billion, compared with €4 billion in 2012, according to CBRE. Deka Immobilien Investment GmbH’s purchase of the Symphony Office Tower in Amsterdam for €215.1 million in December 2013 was the largest commercial-real-estate deal of the year. “There is a lot of dynamism, and there are a lot of new entries in the market,” said Mr. Wolters. CBRE brokered the deal.

Meanwhile, the Dutch banking sector is recovering slowly. The largest Dutch banks, ING Group and Rabobank Group, have been reducing their portfolios of loans. SNS REAAL has been nationalized and transferred €4.8 billion of commercial-real-estate loans and investments to the newly established so-called bad bank, Propertize.

Prudential Real Estate Investors is a European real-estate branch of Prudential Financial Inc. Pramerica Real Estate Capital V already has a pipeline of deals worth approximately €150 million, with projected annual returns that can vary between the single digits to the lower teens, said Andrew Radkiewicz, managing director and co-head of Europe at Prudential Real Estate Investors.

Other nontraditional lenders considering the Netherlands market include Los Angeles-based Karlin Real Estate, which has raised a €600 million war chest for European investments. The firm, which just opened a London office, says it is looking at possible equity investments and mezzanine loans in the Netherlands.

Some analysts, though, warn that mezzanine lenders shouldn’t overpromise. Eleonora Pulci, a director of debt and structured finance at CBRE, says that, in 2011, some of these lenders fell short of their goal of returns in the 18%-to-20% range, partly due to competition.

Also, she says, the European market is getting more complicated for investors. In the past few years, they could focus on one or two large markets. Now, they are increasingly picking and choosing among a number of smaller markets, like Ireland, Spain and the Netherlands.